Advice on what types of business structures, including franchises, would be best suitable

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Question - You are working for an accounting firm, and a client has made an appointment to see you about setting up a business. The client tells you that he is thinking about opening his own computer support business and running his business on his own from his house so that the customers can bring their laptop or PC's to his premises and then repair it. He also tells you that he is thinking about buying into a franchise called IT Support, and he asks you for advice about what is a franchise and is it a good idea?

Your task is to give the client advice on what types of business structures, including franchises, would be best suitable for him. In your answer, you must provide advantages and disadvantages for each of the business structures you have suggested to him.

Answer -

Business structure needs to be decided based upon several factors like cost, taxes, flexibility, etc.there are several business structure options available for the client. These business structures include -

1. Proprietorship - in such a business structure, business is owned and operated by a single person. If the owner wants to have complete control, this is the best of option. There is no separate legal entity created and therefore business assets and liabilities are not separate. The proprietors are answerable for any liabilities, debt and losses of the business.

2. Partnership - Sir, two or more individuals together run a business. In a general partnership partners manage business and assume responsibility for any losses or debts . Profits and losses are shared in the ratio determined by the partnership agreement. The partners have equal decision-making powers in the partnership. The advantage is that all profits and losses are shared equally. The disadvantage is that, partnership being a separate legal entity is a costlier affair.

3. Corporate - a corporation is a legal entity which is separate from its owner or owners. Such entities operate as legal independent entities. The benefit is that such entities are regarded separate from their owners and there is no personal liability involved. The biggest drawback is that corporations are costly and require extensive record keeping and reporting. There are several regulations and tax requirements that need to be complied with.

In the given case, the client wishes to open his own computer support business. If he wishes to have a complete control over his business and treat the business assets and liabilities as his own, he can open a sole proprietor firm. If he wishes to distribute the risks, he can form a partnership firm with another interested party. For a computer support business, a corporation would be an expensive affair. He can set up a corporation after a few years when his business would have significantly bloomed. In the case of a franchisee, there is their own type of business structure. The client can choose amongst any of the above listed business structures and by a franchisee under that business structure. In the case of a franchisee, the business would run as a Separate entity, but use the brand name or process of the franchise company. It would operate under the name of the franchise company or unit and provide services to customers. It would benefit the client as he would not be required to build his own brand from scratch. The client is therefore advised open up a sole proprietorship business and buy franchisee to build his business. Otherwise, if he is confident of being able to build a brand value of his own, he may not buy the franchise.

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